Types of Commercial Mortgages

There are quite a bit of similarities between commercial and residential mortgages. Many of the terms are the same when it comes to the interest rates, which can be adjustable or fixed. Some commercial property owners even have the ability to take out second mortgages. One difference is that they are able to also secure financing on the potential of future earnings on their property.

Adjustable Commercial Mortgage

With an adjustable commercial mortgage, the loan is connected to whatever interest rate index exists at the time the lender completes the paperwork. This type of loan provides borrowers with the option to qualify for more funding down the road. It should be noted that there is a substantial amount of risk with this type of loan because the rate index can increase over time. 

Fixed-Rate Commercial Mortgage

With a fixed-rate commercial mortgage, the interest rate negotiated at the time the paperwork is completed will remain the same throughout the term of the loan, which can span over a 5-20 year time frame.

Interest Only Commercial Mortgage

A borrower may qualify for a interest-only mortgage when they feel strongly that the income generated from the property will appreciate over the long-term. Scenarios will vary depending on the exact terms and conditions of the loan but to give an example, the borrower could make smaller, interest-only payments traditionally for the first 10 years and then after that, the loan would liquidate and the remaining balance would need to be paid in full.

Commercial Second Mortgage

A borrower may apply for a second mortgage if they need cash right away. They can use the equity in their property as collateral. The terms of the second mortgage will vary and can be either a fixed rate or interest only. The duration of the loan also varies and can range from 5-20 years.